What Is A Tax Credit?
A tax credit is an amount of money that taxpayers can subtract directly from the taxes they owe. Unlike deductions, which lower the amount of taxable income, a tax credits reduce the actual amount of tax owed. Tax credits are more favorable than tax deductions because they reduce the tax due, not just the amount of taxable income.
Urban AZ is 1 of the 5% of non-profits in the State of Arizona that is classified as a Qualified Charitable Organization with the Arizona Department Of Revenue. As a QCO, you will receive a dollar-for-dollar state tax credit to use on your upcoming tax return for your donation – up to $400 filing individually and $800 filing jointly.
Real Time Example
For our examples, we will be using the lowest taxable income bracket rate which is 2.59%
|Example 1||Example 2||Example 3|
|Adjusted Gross Income Claimed (Year):||$17,584||$22,217||$26,940|
|State Tax Owed:||$120||$240||$360|
|Donating $120 to Urban AZ would reduce your state tax liability to $0||Donating $240 to Urban AZ would reduce your state tax liability to $0||Donating $360 to Urban AZ would reduce your state tax liability to $0|
*These real time examples will apply to the majority of taxpayers in Arizona filing single: Using the standard deduction ($12,950) without any increases, and only use the charitable tax credit from Urban AZ*
Tax Deduction Vs Tax Credit
A tax deduction reduces how much of your income is subject to taxes while a tax credit directly reduces the amount of taxes you owe, giving you a dollar-for-dollar reduction of your tax liability. Check out the chart below. Which would you rather have?
|Scenarios:||A: $10,000 Tax Deduction||B: $10,000 Tax Credit|
|Final Tax Bill:||$22,500||$15,000|
We’re assuming you would pick scenario B.